Mercantilism eats Free Trade

The notion that computers eat jobs is worthy of a 1950s professor of economics. Fifty-six thousand manufacturing facilities have closed in the U.S. since 2001. The jobs in those plants were not lost due to computers.

During an economic cycle, manufacturing expands worldwide to meet demand. Factories are located in countries where manufacturing is most cost efficient. Computers aren’t the problem, nor do they have the negative impact that Free Trade has had on manufacturing in our country.

Revere ships its coils of copper and brass to other manufacturing companies largely in North America. Since the year 2000, more than 30% of the facilities that Revere shipped product to have shut down and moved offshore, mostly to China.

In the last ten years, multinationals have removed 2.9 million jobs from the U.S. economy. During that same time they added 2.4 million jobs in other countries like China ­ because of governments that provide low cost loans, low cost electricity, grants, tax breaks, and duty exemptions. These countries also provide the benefit of VAT taxes and currency manipulation.

Today, China buys trees from South America, ships them to a paper plant in Shanghai, produces the paper, and ships the paper to Chicago for less than a paper mill in Wisconsin using trees grown in Wisconsin! This doesn’t make sense until you understand the impact that subsidies, VAT taxes and currency manipulation have.

Recently, I sat on an airplane beside a vice president of a shoe company. We discussed these and other economic practices of China. These economic practices are known as mercantilism. Mercantilism is an economic system designed to grow the economy of one nation at the expense of others.

That VP told me a story of how his company used to buy one million pairs of shoes produced in a small town in Spain. His company still buys those shoes but now from a factory in China. We agreed that Free Trade doesn’t exist except in the United States of America.

Let’s go back to the economic cycle and jobs. When a recession begins, the factories that shut down are the factories that have the highest cost for their delivered products. Today, the lowest cost factories for their delivered products are the factories located in countries that practice economic mercantilism.

China has 100 million manufacturing jobs. If we brought only 10% of those jobs back to the United States, our unemployment rate would be 2%! Thinking the problem is computers is really missing the boat.

The country with the economic system that is most mercantile is China. Today most countries practice some form of mercantilism. Mercantilism eats Free Trade and takes away jobs.

Somebody has to make computers as well as shoes and today they are being made in China.